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Need to Know
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International payments are also known as cross-border payments, international money transfers, or global payments. And when foreign nationals send funds home to family members, they are known as remittances. Whether you’re a business collecting payments from overseas, a business paying your overseas suppliers, or an individual sending money to your homeland, you now have a myriad options in addition to traditional bank transfers.
There is no standard price for international payments. The cost will depend on the bank or payment provider that you choose, as each organisation sets its own fees and charges, while market forces will affect the currency exchange rate. Banks are usually the most expensive option, but with the growth of so many alternative payment providers, you’ll find the best rates by exploring the marketplace.
Each bank or payment provider will offer a different service level and pricing structure.
Here are some things to consider to find the best overall service for your needs.
Who is regulating the provider? Is your money at risk? Check that the service is backed by a government authority so that your money is protected with every transaction.
Transfer fees and rates
Look carefully at all the different charges – not everything is transparent and there are often hidden costs. Some providers charge a fixed transaction fee, others take a percentage of the transfer amount, and some waive the transfer fee. However, if there is no transfer fee it may be because the exchange rate is heavily-loaded in favour of the payment provider.
Make sure you can contact the provider at all times through a variety of channels, such as online chat, phone and email. In addition, if you want a more bespoke service, some providers offer personal account managers.
How much money do you need to transfer? Services and rates may vary according to the sums involved, so check if special conditions apply for large or small amounts.
Options for sending and receiving
Ease and convenience are important considerations for both the sender and the receiver. Typical sending methods include bank transfer or credit card. Typical receiving methods include bank transfer and cash pickup.
Foreign exchange, otherwise known as forex or FX, affects any payment made between two different currencies. An exchange rate tells you how much one currency is worth when it is transferred into another currency. This is known as a currency pair (eg, CAD/EUR). Exchange rates fluctuate continuously, and the higher the exchange rate, the more money you receive in the exchange currency.
There are many tools and services that can help you manage the cost of international payments. One of the most common is a forward contract, which is a simple hedging instrument provided by many money transfer organisations. A forward contract enables you to fix an FX rate, giving you price certainty, instead of trying to predict market movements.
If timing is not an issue, you could also create a ‘market order’. This is a payment that is triggered only when a favourable rate is reached. Similarly, if you create a ‘stop-loss order’, you set a minimum level at which you buy or sell your currency.
Whenever you buy and sell across borders, you’ll incur foreign exchange. However, if you open a multi-currency account, you can pay and get paid in a local currency and so avoid foreign exchange fees and losses from adverse exchange rates. For example, you could hold euros and pounds in a single account and then use euros when you trade in Europe. Having a multi-currency account means you can keep your money in the currency of the transaction and then convert it when the exchange rate is in your favour. If you open an account with a bank, steep fees can erode the benefits, but if you shop around you may find good deals with alternative providers.
Money transfer companies are non-bank operators that specialise in international transactions for businesses and individuals. Cost is often cited as the key advantage and other advantages may include a more transparent and straightforward fee structure, a more personalised service, and value-added services tailored to individual needs.
Banks are licensed to keep money on deposit and to pay interest on deposits, and can use this money to lend to others. A money transfer business is purely a payment intermediary that moves funds within strict guidelines.
SWIFT (an acronym for Society for Worldwide Interbank Telecommunications) has long been a mainstay of international payments. In most instances, international bank payments are made through the SWIFT network, which is a secure global messaging system. Rather than move money itself, SWIFT provides the payment orders or codes to action a payment. In other words, SWIFT is a communication system for international transfers between banks. To send a SWIFT payment requires a precise financial address that includes an IBAN number, a BIC/SWIFT code and the recipient’s banking details. SWIFT is aiming to transform cross-border payments with its Global Banking Initiative (known as SWIFT gpi), a new standard in global payments that will increase speed and security.
When you make an international payment in Europe, you’ll need your recipient’s International Bank Account Number. An IBAN is a standard international address that comprises up to 34 letters and numbers that identify an overseas bank account.
A BIC is a Bank Identifier Code created by SWIFT to identify banks that are part of the SWIFT messaging network for international payments. Whereas an IBAN is used to identify an individual account involved in an international transaction, BICs are used to identify a specific bank during an international transaction.
SEPA stands for Single European Payments Area. A European Union (EU) initiative, SEPA was formed in 2008 to simplify euro payments across the 28 EU member states together with the four members of the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland). Monaco and San Marino are also part of SEPA, and the UK has also been granted membership despite leaving the EU. SEPA has created a single market for euro-dominated payments, and is built on three payment schemes: SEPA Direct Debit (SDD), SEPA Credit Transfer (SCT), and SEPA Cards Framework (SCF).
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